NEW YORK/WASHINGTON, Jan 8 (Reuters) - American International Group Inc, the insurer rescued by the U.S. government in 2008, said on Tuesday it is considering joining a lawsuit that claims the bailout terms were unfair, drawing angry condemnation from lawmakers.

A leading congressional Democrat called criticism of the deal’s terms “utterly ridiculous,” and former New York Attorney General Eliot Spitzer - who probed AIG when he was in office - called the prospect of a lawsuit “insulting to the public.”

The White House declined to comment on the potential for a lawsuit but defended the $182 billion bailout.

Newly elected Senator Elizabeth Warren, feared by Wall Street as a potential thorn in its side on the Senate Banking Committee, called the lawsuit talk “outrageous” and said the company should not “bite the hand that fed them for helping them out in a crisis.”

In a statement late Tuesday, AIG said it had no choice but to consider the demand from its former chief executive, Hank Greenberg, and his holding company Starr International that AIG join his lawsuit. Greenberg has sued for damages over the bailout and wants AIG to join him in challenging the “exorbitant” terms of the government rescue.

Legal action by AIG would be shocking, given that the company has just launched a high-profile television ad campaign called “Thank you, America,” in which it offers the public its gratitude for the bailout. On Tuesday, AIG promoted the ads on Twitter, even as it came under fire over a possible lawsuit.

“AIG has paid back its debt to America with a profit, and we mean it when we say thank you to the American people,” CEO Bob Benmosche said in a statement.

“At the same time, the Board of Directors has fiduciary and legal obligations to the Company and its shareholders to consider the demand served on us and respond in a fair, appropriate, and timely manner,” he said.

AIG said its board would meet Wednesday to discuss joining the lawsuit, with three options on its plate: take over and pursue the claims made by Starr; refuse Greenberg’s demand and block Starr from pursuing its claims; or let Starr pursue the claims on AIG’s behalf.

It expects to make a decision “in the next several weeks,” Benmosche said.

Greenberg, whose Starr International owned 12 percent of AIG before its near-collapse, has accused the New York Fed of using the rescue to bail out Wall Street banks at the expense of AIG shareholders. He has also called the NY Fed a “loan shark” for charging the “exorbitant” interest of 14.5 percent on its initial loan to AIG.

“If AIG enters this suit it would be the equivalent of a patient suing their doctor for saving their life,” said Mark Williams, a former Federal Reserve bank examiner who teaches in the finance department at Boston University.

BUSINESS JUDGMENT

A federal judge in Manhattan already dismissed one of Greenberg’s lawsuits in November; it is being appealed.

In his ruling dated Nov. 19, Judge Paul Engelmayer said AIG had notified the court it would hold a board meeting Jan. 9 to discuss joining one of the lawsuits, with a decision expected by the end of the month.

A separate lawsuit under different legal theories is still pending in the U.S. Court of Federal Claims in Washington.

One expert in securities law said he doubted AIG would ultimately decide to join the case.

“All the fiduciary standards that guide board behavior would warn against joining the suit,” said James Cox, a professor of corporate and securities law at Duke University School of Law in Durham, North Carolina. “I see nothing to be gained by AIG piling on, and I see a lot of downside risk.”

The deliberations were first reported by the New York Times.

‘CHOICE WAS BANKRUPTCY’

The New York Fed said Tuesday there was no merit to any allegations that the bank harmed AIG.

“AIG’s board of directors had an alternative choice to borrowing from the Federal Reserve and that choice was bankruptcy. Bankruptcy would have left all AIG shareholders with worthless stock,” a representative of the bank said Tuesday.

Elijah Cummings, the ranking Democrat on the House Committee on Oversight and Government Reform, acknowledged that AIG’s board has a fiduciary duty to consider the lawsuit. But he also said the company had a choice in 2008 and picked what it considered the better option.

“The idea that AIG might sue the government is an unbelievable insult to our nation’s taxpayers, who cleaned up the mess this firm created,” he said in a statement.

Cummings’ former colleague, the recently retired Barney Frank, said he was “stunned” by the news and added that AIG was a fully willing participant in the rescue.

“There was not the hint of a suggestion of any coercion. They did this very voluntarily, very gratefully. And if the company were now to go around and join this lawsuit, that would be outrageous,” Frank said in an interview.

The U.S. Treasury declined to comment. It completed its final sale of AIG stock in mid-December, concluding the bailout with what Treasury called a positive return of $22.7 billion.

AIG shares fell 0.8 percent to close at $35.65. After losing half its value in 2011, the stock rose more than 52 percent in 2012, tripling the gains of the broader S&P insurance index .